Can NAFTA Improve Gender Equality?

On August 14th, Canadian Foreign Affairs Minister Chrystia Freeland gave an outline of what her country seeks to achieve in the renegotiation of NAFTA. The majority of Ms. Freeland’s wish list pertains to issues which are commonly dealt with in international treaties. However, one point is clearly new territory for what is sold as a free trade deal. The Canadian government wants a new chapter on what it calls “gender rights.”

While Ms. Freeland gave little to no indication of what such a chapter would contain, a safe assumption can be made that it would seek government action to promote economic equality between the sexes. The move would not be an unexpected or even unprecedented one for the Canadian government. Prime Minister Trudeau has emphasized gender equality in his cabinet, and they have even made similar moves for gender equality when renegotiating their trade deal with Chile.

Social commentators will undoubtedly have much to say on this topic when negotiations go forward. Their voices will surely be heard, but what about the economists? Economics has nothing to say about the merit of goals themselves, but it has a lot to say about whether or not the means used to obtain them are appropriate.

When viewed through the lens of economic science, can the Canadian government successfully achieve its goal of gender equality through government action, or will its efforts simply compound that which it seeks to remedy? Moreover, does economics say that the problem can even exist?

Equality and Gender in Free Markets

Before analyzing any potential intervention into the markets that may or may not arise from Canada’s NAFTA ambitions, an understanding of how labor markets work unimpeded is essential.

Few will question that the goal of a business is to generate as much profit as possible. The purpose of hiring an employee is to aid in producing the goods which enable them to do just that. The value which hiring that employee creates for a business, and by extension its customers, is the source of that employee’s wages.

In a free market, wages are determined purely by the productivity of the employee. Basically, that statement means that a person’s labor is as valuable as the anticipated additional revenue which a firm will gain by hiring them, or conversely lose by firing them. Markets tend to keep wages at this level. Why?

If an employee’s wages are bid too low for market conditions, competing firms will happily pay more to benefit from that employee's productivity. The original firm would likely even increase the employee’s wages by itself to avoid losing them, much like Henry Ford had to do.

Notice that nowhere in that description was gender mentioned. Little to no wiggle room exists within a free market for employers to discriminate for anything other than the economic value an individual creates. For an employer to do so would be both self-defeating and unsustainable. For instance, if employers could purchase a woman’s equally productive labor for a lesser price than a man’s, the increased demand for female labor would very quickly bid wages to the correct level. Indeed, many scholarshave shown empirically that women do in fact earn equal pay for equal work, despite claims otherwise.

Because businesses are only concerned with the value an employee can add, the distribution of the sexes within professions will also be based purely upon individuals' merit as producers.

Naturally, a business will hire those individuals which it thinks can best perform the tasks required in order to boost the quality or quantity of production. To hire more less efficient workers based upon irrelevant personal factors would again be self-punishing.

NAFTA Can Only Get In The Way

The above analysis proves that there is indeed virtue in profits and trade. When businesses are guided by them, they have little choice but to treat people on the basis of their individual merits. Indeed, the test of profit and loss is the great equalizer, in which consumers and by extension businesses pass judgment purely on the basis of how well you can satisfy people’s needs. Markets are fair, in the only meaning of that term which is coherent. The market system isn’t perfect precisely because humanity isn’t, but, when mistakes are discovered, they get corrected.

Adding a chapter on gender rights to NAFTA would be at best superfluous, and potentially detrimental to gender equality in North America. If the chapter is simply a way for government officials to signal their virtue without creating anything with legal teeth, it will do nothing. However, if it does have actual regulatory provisions, the effects can only be harmful.

Since markets do remunerate laborers based upon the value they produce, government regulations which seek to establish a different set of conditions based upon sex actually introduce unfair discrimination. Arbitrary government gender guidelines can only favor some individuals over others on the basis of their sex. While the actual specifics of what will come from a new NAFTA chapter cannot be known, general rules can be established.

The two major areas which could be addressed are wage equality and the ratio of men and women in an occupation. Regulations which seek to establish some parity in wages between sexes will price some out of jobs purely on the basis of their gender. If an individual who happens to be of one sex is less productive than one of another sex but government has decreed that they must be compensated equally, the former will find it far more difficult to find employment in that field because they will have been forcefully priced too high.

Regulations which seek to establish equal ratios of men or women in a profession will put some who are better suited for jobs at a disadvantage to less productive workers of a different sex. Instead of individuals being evaluated purely on their ability to add value, the businesses would be forced to discriminate against higher quality applicants on the basis of sex to avoid government penalty. In both of the preceding examples, government action would actually create the very discrimination which the policy’s advocates seek to eliminate.

The best renegotiation of NAFTA would shrink it to only a single sentence: The governments signed below will not in any way interfere with peaceful commerce across our borders. That one statement is all that free trade requires, and every step in the negotiations should be a step in that direction. Get out of people’s way, and let markets work. Doing so will create a society that is at once more peaceful, more prosperous, and more equal.